Guest column: Tips on navigating taxes in or near retirement

Tax seminar

What: Inter Valley Health Plan is hosting a seminar, Tax Issues: For the Nearly or Newly Retired. Topics include Social Security benefits, working after retirement and retirement plan distributions. A Q-and-A will follow.

I'm about to engage in that time-honored ritual so many of us loathe: pulling together all my tax information in preparation for April 15.

Just a few years shy of 65 and retirement not far off, I am challenged with preparing for all the new regulations and rules I'll need to follow when filing my taxes. Although I am a finance professional, I found myself struggling to understand what to do or not do once I turn 65.

And from talking to family, friends and colleagues, I'm definitely not alone.

This new bracket, foreign until now, is especially challenging now with social security, retirement and possible health expenses to consider when filing taxes. I've done my homework on this; here is some important information that can help others who have turned 65 or who recently retired plan for tax season this year.

• Recognize that taxes don't stop because you turn 65 or retire. Unfortunately – with the exception of payroll taxes – you will still be subject to taxes on any income such as pensions and IRA distributions over a certain threshold. Plan accordingly.

• Take the money and run … or don't. Upon retirement, some companies will allow a lump-sum payout for pensions. If your company is having financial difficulties, or you need the cash, you may want to consider the payout. Keep in mind that if the pension was funded by pretax income (and most are) you will be taxed based on that income. There are exceptions. Do the math and consider speaking with a financial adviser.

• Remember that Social Security payments may not be tax-free. If you make over a certain threshold, your Social Security benefits could be reduced. If you are on Medicare but still working, and perhaps putting off retirement, remember that your benefits are subject to income tax. So if you are considering retirement, factor in that cost when making your decision.

• Plan for unexpected health expenses. This can happen at any age. Even simple healthcare procedures can cost thousands of dollars, and a long-term illness can cost much more. Ensure you have a strong Medicare Advantage plan and money saved. If you have a serious illness, you may need to take money out of your retirement plan to pay bills. While this withdrawal may not be subject to a penalty, it might be subject to income tax if the funds are from a pretax account.

• You qualify if you're over 65. There is some good news. If you are over 65, you do qualify for the Credit for the Elderly or the Disabled. Taxpayers age 65 and older also receive an increased standard deduction amount if they do not itemize.

For my contemporaries who have also turned 65 or who soon will, take heart. Talk to friends, colleagues and especially to trained tax advisers. Don't forget to check out the many resources available online and through local organizations and clubs dedicated to helping those over 65.

User Agreement

Keep it civil and stay on topic. No profanity, vulgarity, racial
slurs or personal attacks. People who harass others or joke about
tragedies will be blocked. By posting your comment, you agree to
allow Orange County Register Communications, Inc. the right to
republish your name and comment in additional Register publications
without any notification or payment.